The realtor sent me this one this morning. What do you guys think? Of course I would knock off at least 20% before making an offer.
Annual Income
Gross Scheduled Income $159,120.00
- Vacancy $11,138.40
= Effective Rental Income $147,981.60
- Other Income $0.00
= Gross Operating Income $147,981.60
Annual Operating Expenses
Taxes $6,924.00
- Insurance $3,300.00
- Property Management $11,838.53
- Maintenance & Repair $5,860.00
- Utilities $11,200.00
- Services $6,080.00
- Other Expenses $5,000.00
= Annual Operating Expenses $50,202.53
Net Operating Income
Gross Operating Income $147,981.60
- Annual Operating Expenses $50,202.53
= Net Operating Income $97,779.07
Annual Debt Service
1st Mortgage Principal and Interest $68,348.05
Annual Cash Flow Before Tax
Net Operating Income $97,779.07
- Annual Debt Service $68,348.05
- Capital Additions $0.00
= Cash Flow Before Tax $29,431.02
Complete rehab with all new and or
upgraded electrical, plumbing, kitchens, bathrooms,
flooring, paint, HVAC systems and landscaping.
Upside potential of an additional $4000 per year by
converting the existing storage rooms to laundry
Proposed Financing
Purchase Price $1,220,000.00
1st Mortgage $976,000.00
P o i n t s 1.0
Interest Rate 5.750%
Amortized Over 30.0 years
Term (Due Date) 10.0 years
Initial Investment
Purchase Price $1,220,000.00
Down Payment $244,000.00
- Closing Costs $24,400.00
- Loan Points $9,760.00
- Other Costs $0.00
= Total Investment $278,160.00
Indicators
Cap Rate 8.01%
Gross Rent Multiplier 7.67
Cash on Cash 10.58%
Debt Coverage Ratio 1.43
Modified DCR 1.43
Return on Gross Equity 12.06%
Return on Net Equity 12.06%
Here’s how I see this deal:
Gross rents: $13,260 per month
Operating Expenses: $6,630
NOI: $6,630
Debt Service ($1,220,000, 30 yr, 7%): $8,116
Monthly LOSS: $1,486 OUCH!
Doesn’t look like a good deal to me. How many units is it?
Good Luck,
Mike
1st thing I would do if you move forward: Individual meter the utilities and save yourself 11k. Second thing I would do, if you’re able, is manage the property yourself and save almost 12k. Good luck.
20 units, and they are individually metered for gas and electric. I guess they are not paying individually though.
And I am not a landlord, so it is the property management co.
I would like to use this as an example. How could it be profitable? Raise rent, have the tenants pay their own utilities, reduce price by xxx? I am not buying on what a property “could” do or be. I want to buy one on how it is performing now and in the past.
At over 60K per unit this is not a good deal at all. Get to less than 40K per unit and then the discussion can evolve into something a little more serious
I would like to use this as an example. How could it be profitable? Raise rent, have the tenants pay their own utilities, reduce price by xxx?
Unfortunately, landlords don’t set the rent - the market does. So, unless the rents are below market, raising rents won’t work.
I never buy rentals when I have to pay the heat. That’s an invitation to disaster.
Therefore, reducing the price is answer.
Good Luck,
Mike
So having the tenants pay the utilities, since they are individually metered anyway. And I dont think anyone pays the asking price so -20%
Even at 1000000 I dont think it would work. Why do brokers say properties like this are “great deals”? I am beginning to really think 99% of brokers and agents are complete liars.
You just had what is refered to as a “BFO” - a blinding flash of the obvious! AS oft-stated here, a high percentage or agents are ‘used car salesmen with better suits’…
Keith
Brian,
I don’t think that most brokers and agents are liars. They are just completely ignorant about real estate investing. After all, the vast majority of real estate investors fail in a short period of time because they are ignorant too. It’s not that they are liars, they just don’t understand the business.
Mike
I think it’s helpful to clearly state your specific criteria to the people bringing you the deals.